Evolution of the Direct Market Part V

As I detailed in my last column, I went to great lengths in 1978 to become a
subdistributor for Seagate Distributing. By becoming a subdistributor, I was
allowed to purchase my new comics at a 50% discount from cover price, which was
an unheard-of-rate in those early days of the Direct Market. The normal rate
from ID wholesalers at that time was 30% (with return privileges if the comics
didn't sell after 30 days), or 40% from Seagate. To receive an extra 10% off of
cover price on all my new comics (which I was already selling...) provided me a
huge financial benefit. This was offset, of course, by the fact that Seagate
required payment at the time you submitted your order, which often left my cash
flow tied up in Seagate's hands for many months. But for such a substantial
decrease in my overall new comics costs, I was more than willing to make the
switch to Seagate.

Ironically, the primary reason for my wanting a better discount on my new comics
was not so I could earn a greater profit on my new comics sales. Quite the opposite,
in fact. I wanted a greater discount on my new comics cost because today's new
comics became tomorrow's back issues. Like most comics dealers of that era, I
regularly speculated in new issues, setting many thousands aside for future back
issue sales. By reducing my cost of setting aside new issues for backstock by
approximately 17%, I greatly improved the overall economics of my speculating.

Along that same line of reasoning, one factor I cannot stress enough is how marginal
the new comics business was during the period of the late-1970's. Even with a 50%
discount, our earnings on the sale of a 40 cent cover price new comic were only 20
cents. Even selling many thousands of new comics each month didn't provide the
operating earnings required to cover even our store rents, much less any of our
other operating expenses. New comics were great traffic builders, however, and the
only store in Denver that tried to live without them soon failed.

Making low cost recent back issues all the more important, as a part of my plan to
expand Mile High Comics after my 1977 discovery of the Edgar Church collection,
I had in early 1978 purchased Richard Alf's San Diego-based comics mail order
business. Richard wanted out because he realized that he simply didn't have the
resources to compete with the powerhouse mail order dealers of the day such as
Robert Bell, Pacific Comics, and Passaic Book Center. He had, however, built a very
nice little business, and he was convinced that I would be able to expand it quite
easily. Richard's biggest problem was that given the size of his mailing list, he
had a remarkably small inventory of back issues. To his credit, however, he had
developed some wonderful manual systems for tracking customers, orders, and
inventory. I made a $20,000 bet that I could grow his business quite rapidly by
wedding my existing 200,000 copy back issue inventory to Richard's superlative
operating systems, and massive mailing list.

Tying this all back to Seagate, with my purchase of the mail order business, I
desperately needed a break on my costs of speculating in new comics. During our
purchase discussions, Richard had made me very aware that there were warehouses
on the East Coast where I could purchase recent back issues for five cents each,
or less. The hitch was that Richard believed that these books were the results of
"affidavit returns" scams on the part of some crooked distributors (Richard even
provided me with several carton labels made out to a certain huge New York
distributor that had come off of unopened cases that Richard had purchased through
one of these warehouses...). Richard had visited one East Coast warehouse in 1977,
and reported to me that the place was so big that they had one staff member who
spent the entire day shifting around pallets of comics, magazines, and paperbacks
so that potential customers could get a better view. Clearly, any mail comics
dealer who availed themselves of this incredible source of cheap recent back
issues would have a tremendous operating advantage over us.

Ultimately, my decision was to gut it out. I refused to buy from the returns
warehouses, deciding instead to purchase my recent back issues from Seagate. While
I wasn't getting my inventory for a nickel, the economics still worked due to the
low cover prices. I could, for example, purchase an entire case (300 copies) of a
new issue of Uncanny X-Men from Seagate for only $60 (40 cent cover price
less 50% = 20 cents X 300 = $60). Since there were no mail order subscription
services in those days, and new comics distribution was spotty (at best), we
typically sold at least 100 copies of a popular title within 90 days, at a minimum
back issue price of 50 cents. That recovered our working capital very quickly, and
allowed us to purchase another case the next month. Even "dog" titles sold pretty
well, as there was such a remarkable shortage of available back issues in the
marketplace. Bear in mind, this was a period when Marvel and DC, combined, only
published 50-60 titles per month. This lack of supply in the face of rapidly
growing demand for comics is what ultimately led to the break-up of Seagate
Distributing.